May 2009

From the editors of CCH's Transportation products, here are summaries of the important recent developments in the area for the past month.  Complete coverage of these issues, and many more, appear in our print and electronic products, including: Aviation Law Reporter, Commercial Aircraft Transactions, Issues in Aviation Law and Policy, Federal Carriers Reporter, Federal Motor Carrier Safety Administration Decisions, and Motor Carrier Liability.

If you have comments or suggestions concerning the information provided or the format used, please feel free to contact me directly at aaron.broaddus@wolterskluwer.com.

Hot Topic

FAA Reauthorization Clears House
The U.S. House of Representatives voted on May 21 to pass the FAA Reauthorization Act of 2009 (H.R. 915), which includes provisions to extend the Airport and Airway Trust Fund fuel taxes for three years. U.S. Senate lawmakers still must approve the measure, which passed the House by a vote of 277 to 136. The House bill would provide $53.5 billion for the FAA's capital programs from fiscal 2010 through 2012, and would boost fuel taxes for noncommercial aviation from 21.8 cents per gallon to 35.9 cents per gallon in the case of aviation-grade kerosene. It also would boost taxes for aviation gasoline from 19.3 cents per gallon to 24.1 cents per gallon. The bill now heads to the Senate, which recently started to draft its own version of the legislation.

For his part, House Transportation and Infrastructure Chairman Jim Oberstar (D-Minn.) expressed guarded optimism that H.R. 915 might not fall prey to Senate filibusters this year. Speaking at a hearing of the House Ways and Means Committee on May 7, Oberstar said that the FAA Reauthorization Act of 2009 has bipartisan support in the House and among industry executives representing the entire aviation industry. The measure is very similar to last year's bill, which also made it through the House before a Senate slowdown caused the initiative to die at the end of the 110th Congress.

Oberstar urged lawmakers to act quickly to report legislation renewing aviation excise taxes and general aviation fuel taxes that support the Airport and Airway Trust Fund, as well as development of the nation's airports and air traffic control system for the next four years. In response to a question by House Oversight Subcommittee Chairman John Lewis (D-Ga.), Oberstar said that he has received some signals from Senate lawmakers that action might be possible this year. Aviation Law Reports, Report Letter No. 1404, May 28, 2009.

FAA Drug and Alcohol Rules Consolidated
The Federal Aviation Administration amended its drug and alcohol regulations to reorganize them into a single regulatory part, to be codified at 14 CFR Part 120. The initiative, which makes no substantive changes to existing requirements, should simplify the location of specific provisions, as well as prospective changes to those provisions for individuals and entities required to comply with the agency's drug and alcohol testing requirements. The new Part 120 is slated to take effect on July 13, 2009. Aviation Law Reports, Report Letter No. 1404, May 28, 2009.

Aviation News

Airline 2008-Q4 Financial Data Reflects Continuing Downturn
As a group, the seven largest network airlines in the U.S. reported an operating margin of -6.7 percent in the fourth quarter of 2008, marking the fifth consecutive quarterly operating loss since the group last posted a profit in the third quarter of 2007, according to the latest data released by the Bureau of Transportation Statistics. BTS preliminary financial data for the industry revealed that six of the seven largest U.S. carriers chronicled an operating loss in last year's October-to-December period, with only Alaska Airlines showing a profit of 4.1 percent. The seven network carriers incurred combined operating losses of $1.684 billion, as compared with the fourth quarter of 2007, in which the seven network carriers experienced combined losses of $274 million.

The low-cost and regional airline groups both reported operating profit margins for the fourth quarter of last year, however, BTS said, noting that only Virgin America and ExpressJet Airlines showed quarterly losses. The total industry collected $498.6 million in excess baggage fees in the fourth quarter of 2008; up 42 percent from the $350.1 million collected in the third quarter and 301 percent from the $124.2 million collected in the fourth quarter of 2007. Passenger revenue for the total of 21 airlines in the three groups declined $4.2 billion from the third- to fourth-quarter 2008. Aviation Law Reports, Report Letter No. 1403, May 14, 2009.

FAA Proposes Crewmember Management Initiative
Certificate holders conducting operations under 14 CFR Part 135 would have to include crew resource management (CRM) in their crewmember training programs, under a proposal recently issued by the Federal Aviation Administration. The initiative relates to all crewmembers, seeks to ensure they receive adequate training in the use of CRM principles appropriate for their operation, and responds to recommendations issued by the National Transportation Safety Board. The action is intended to reduce the frequency and severity of crew-based errors, thereby resulting in a concurrent reduction in the frequency of accidents and incidents in single- and dual-pilot Part 135 operations, FAA indicated.

CRM training encompasses some traditional organizational management concepts—including team building, transfer of information, problem solving, decision making, maintaining situational awareness, and using automated systems—into flight operations, the agency said, adding that the training would focus upon communication and interactions among pilots, flight attendants, operations personnel, maintenance personnel, air traffic controllers, flight service stations, and others. Training in the above-specified concepts would help prevent errors such as runway incursions, misinterpreting information from tower controllers, and crewmembers' loss of situational awareness as well as their failure to fully prepare for takeoff or landing. FAA, NTSB, and industry stakeholders consistently have recognized that problems associated with poor decision making, ineffective communication, inadequate leadership, and poor task- or resource-management have been major contributors to accidents and incidents within the aviation industry, FAA said, asserting that CRM training for crewmembers is a critical element in reducing such events.

In December 1995, an FAA final rule mandated that all certificate-holders operating under 14 CFR Part 121 include CRM training in their crewmember training programs. That requirement extended to certificate-holders conducting operations under Part 135 that are required to comply with Part 121 training and qualification mandates, such as those that conduct commuter operations with airplanes for which two pilots are required by aircraft certification rules, and those that conduct commuter operations with airplanes having a passenger seating configuration of 10 seats or more. If adopted, the latest initiative would continue the precedent set by the 1995 final rule, extending the CRM training requirement to all certificate-holders conducting Part 135 operations. Aviation Law Reports, Report Letter No. 1403, May 14, 2009.

Repair Station Proposal Withdrawn
A December 2006 proposed rulemaking that would have revised the system of ratings for aircraft repair stations and required them to establish a quality-assurance program was withdrawn by the Federal Aviation Administration late last week. Citing significant issues raised by the more than 500 public comments received on the initiative, the agency voiced its belief that the initiative did not adequately address the current repair station operating environment.

As previously reported, the proposal would have necessitated additional changes critical to maintaining safety; including requiring a repair station to maintain a capability list, designating a chief inspector, and having permanent housing for its facilities, equipment, materials, and personnel. Also specified were additional instances under which FAA could deny a repair station certificate.

Withdrawal of the 2006 proposal gives the agency time to thoroughly review and more fully address recent changes in the repair station business model, FAA reasoned, revealing that it already has initiated a new rulemaking to address concerns raised by commenters to the earlier proposal as well as other issues related to bringing the repair station regulations up-to-date with current industry. Aviation Law Reports, Report Letter No. 1403, May 14, 2009.

Cancellation of NY Airport Slot Auctions Proposed
The controversial regulations governing congestion management for LaGuardia, John F. Kennedy, and Newark Liberty Airports would be rescinded and the plans for slot auctions cancelled, under a recent proposal issued by the Federal Aviation Administration. As previously reported, the auctions were proposed as part of a plan to reduce congestion and delays at the three New York City-area airports, along with caps on the number of flights per hour at each. Litigation ensued, and a federal appeals court in the District of Columbia issued an order staying the regulations from being implemented. Furthermore, with the March 11, 2009 signing of the Omnibus Appropriations Act, 2009 [Pub. L. 111-8], FAA was statutorily prevented from implementing the rules or conducting slot auctions until the end of the government's fiscal year on September 30, 2009.

Because of the complexity of the issues, the uncertainty caused by the Appropriations Act, and the possible impact of the significantly changed economic circumstances upon the slot auction program, FAA said it believes rescission of the standards would be the best course of action. In remarks to the Association for a Better New York, Transportation Secretary Ray LaHood indicated that the government still was serious about tackling aviation congestion in the New York Region, and that he would be talking over the summer with airlines, airports, consumer stakeholders, and elected officials about the best ways to move forward in that regard. Aviation Law Reports, Report Letter No. 1404, May 28, 2009.

Separate Screening Lines for Coach, First-Class Passengers O.K.'d
A California federal court ruled that an individual's claim that his constitutional rights had been violated by an air carrier's segregation of first-class and coach passengers for pre-boarding screening purposes at an airport security checkpoint failed because he did not sufficiently allege that the carrier had been acting under color of state law or that he had been deprived of any right secured by the U.S. Constitution or laws of the United States.

According to the court, the passenger's arguments that the carrier (a private company) had acted under color of state law—either independently or by virtue of its joint participation and official cooperation in the operation of the security checkpoint—with either the Transportation Security Administration or the airport authority were without merit, because: (1) the passenger did not allege that the carrier's activities in regulating the security line had been fairly attributable to any law or policy at the state or local level; (2) the carrier's joint participation with TSA was not an action under color of state law, as TSA is a federal agency operating under federal law; and (3) the carrier's joint participation with the airport authority was not an action under color of state law. Acknowledging that the airport authority potentially was subject to liability under the civil rights provision, the court nevertheless held that the individual did not adequately allege that the airport authority itself had acted under color of state law, or what role, if any, the airport authority had played in operating the TSA security line, much less that its role had been significant.

The passenger's claim that his constitutional right to equal protection under the law had been violated by the carrier's segregation of first-class and coach-class passengers also failed, the court remarked, reasoning that the passenger had not alleged the requisite discriminatory intent, had not demonstrated that he was a member of a protected class, and had not pled facts indicating that the carrier's actions in operating the security line had lacked a rational relation to a legitimate state interest. Majors v. Transp. Security Admin. (SDCal) 33 Avi. 17,667.

Reconsideration of WTC Valuation Issue Summarily Denied
The federal judge overseeing the negligence suit by the property manager of New York's World Trade Center (WTC) against the two air carriers whose aircraft had been hijacked by terrorists and flown into Towers One and Two denied the property manager's most recent motion, chastising it as an attack on his December 2008 ruling that the market value of the destroyed buildings as of September 11, 2001, was the limit of permissible recovery and not the replacement value.

In the December opinion, Judge Alvin K. Hellerstein determined that the presumptive value of the destroyed towers was $2.805 billion, but permitted the property manager to show by subsequent motion that the buildings' market value had changed during the interim period between the April 26, 2001 date that the leases had been executed and September 11, 2001. Because the property manager's subsequent submission attacked the earlier ruling and sought instead to correct errors of fact and law, Judge Hellerstein deemed it to have been a motion for reconsideration (albeit filed well past the ten-day period provided in the Federal Rules of Civil Procedure) that only had attempted to rehash earlier arguments.

The property manager assailed the court's previous determination that the presumptive value of the destroyed properties was $2.805 billion, which had been a negotiated figure as of July 16, 2001, when the property manager had agreed to pay that value for the 99-year lease on the buildings granted by their owner, Judge Hellerstein admonished, asserting that neither of the property manager's experts had given a higher figure, and that the only alternative figure was lower. If anything, the $2.805 billion paid to the owner exceeded the then-current market value of the leaseholds, the judge intoned.

Furthermore, contrary to the property manager's assertion, the court had not treated the lease as destroyed or confused the value of the WTC buildings with the value of the lease. Nor was there merit to the property manager's argument that the buildings' destruction had caused their leasehold to have a negative value based upon the leases' special covenants requiring replacement of the destroyed properties, and that the air carriers should have been liable to pay that negative value. No argument in the original opposition motion had discussed a negative fair market value, and a new argument may not be introduced by a motion for reconsideration, the judge cautioned. Having lost its argument for replacement value, the property manager could not subsequently argue for the equivalent of a replacement value, i.e., a negative fair market value that would impose contract obligations of specific performance upon the carriers and their insurers, the court held. Therefore, as the property manager failed to submit a showing that the value of the leaseholds prior to the September 11 attacks had been more than $2.805 billion, any recovery against the carriers could not exceed that amount, and the property manager's motion for reconsideration was denied. In re September 11 Litig. (SDNY) 33 Avi. 17,706.

Surface Transportation News

STB Revises User Fee Schedule
The Surface Transportation Board (STB) issued a final rule revising its user fees to reflect changes in the agency's expenses and overhead costs. Under federal regulations, the STB is required to annually review and update its user fee schedules, taking into consideration salary increases and overhead costs affecting the agency. As a result of this review, the agency is updating its fee schedule to reflect the government's 2009 salary increases, changes in fringe benefit costs, and other expenses. The revised fee schedule takes effect June 4, 2009.

The fee changes are the result of the mechanical application of an update formula that was established through a notice and comment process. As such, the STB concluded that a notice and comment period was not required for this rulemaking. Federal Carriers Reports, Report Letter No. 1557, May 8, 2009.

Per-Accident Limit in Policy Governs Insurer's Liability
A federal court of appeals ruled that a commercial motor vehicle insurer's liability was limited to a maximum of $1,000,000 per accident as provided for in its policy. The insurer had sought a declaratory judgment, finding its liability for a tractor-trailer/automobile accident was limited to $1,000,000 per accident, not per person as alleged by the defendants. The defendants, a group of individuals injured in the accident, argued that, under the Motor Carrier Act and the MCS-90 endorsement attached to the policy, the insurer's minimum liability was $750,000 per person. A federal district court rejected this claim, ruling that the insurer's liability was limited to the $1,000,000 per-accident policy limit. Moreover, the trial court held that the neither the MCA nor the MCS-90 endorsement established a minimum per-person limit for motor carrier insurance coverage requirements.

The defendants appealed the lower court's ruling, arguing that the $750,000 minimum insurance requirements for motor carriers set by the MCA applied on a per-person basis pursuant to a federal statute that requires a motor carrier to carry liability insurance or some other type of security sufficient to pay “for each final judgment” for bodily injury to, or death of, “an individual.” The appellate panel rejected the defendants' reasoning, stating that it ignored the full text of the statute, which provides that: “The security must be sufficient to pay not more than the amount of the security, for each final judgment against the registrant for bodily injury to, or death of, an individual.” Other courts have interpreted this to mean that an insurer's liability is limited to either the minimum security required by statute or any greater amount agreed to by the insurer. The appellate court agreed with this analysis, finding that the “not more than the amount of the security” language referred to the $1,000,000 security per-accident the motor carrier had obtained from the insurer. Based on this, the insurer's maximum liability for the accident in this case was limited to $1,000,000, as provided for in the insurance policy. Accordingly, the lower court's decision in favor of the insurer was affirmed. Carolina Cas. Ins. Co. v. Estate of Karpov (7thCir) Federal Carriers Reporter ¶84,590.

Railroad Employees' FELA Claim Precluded by FRSA
Actions by two railroad employees against their respective employers under the Federal Employer's Liability Act (FELA) were precluded by the Federal Railroad Safety Act (FRSA), a federal court of appeals ruled. The employees each had suffered injuries caused by years of walking on oversized track ballast. Both filed a FELA claim, alleging that their employer had failed to provide a safe work environment by using large mainline ballast-instead of smaller yard ballast-underneath and adjacent to tracks subject to heavy foot traffic. The employers challenged the FELA claims, asserting that they were precluded under the FRSA because the Secretary of Transportation had promulgated regulations relating to ballast size. A federal district court ruled in favor of the employer, finding that the FELA claim was barred by the FRSA.

Upon review, the appellate court reasoned that, in order to promote uniformity in the law pertaining to railway safety, a FELA claim will be disallowed by FRSA, if it would have been preempted had it been brought under state law. According to the court, a state law claim will be preempted by FRSA if it deals with a subject matter for which the Secretary of Transportation either has adopted regulations or issued an order. In the cases at issue here, the court held that, because the FELA claims dealt with the issue of ballast size used to support tracks in heavy foot traffic areas and the applicable federal regulations were deemed to have addressed this issue, the FELA claims were precluded. Consequently, the lower court's ruling was affirmed. Nickels v. Grand Trunk W. R.R. Inc. (6thCir) Federal Carriers Reporter ¶84,591.

Summary Judgment on Insurance-Related Claim Not Warranted
A federal district court held that a receiver of goods was not entitled to summary judgment on a claim that it had violated a federal statute by coercing or attempting to coerce commercial motor vehicle operators into paying for unloading services by adopting heightened insurance requirements for drivers wishing to unload their own vehicles. Alternatively, the court ruled that the receiver was entitled to judgment on claims that it had not compensated drivers it had required to hire unloading services and had failed to provide the equipment necessary for the drivers to unload palletized freight without the assistance of an unloading service. A group of owner-operators had filed the action against the receiver for declaratory and injunctive relief. The suit claimed that the receiver had violated federal law by: (1) failing to compensate the owner-operators for the required use of unloading services; (2) requiring drivers to provide proof-of-insurance coverage in excess of the statutory minimum if a driver wished to unload his own trucks; and (3) choosing to receive its product as palletized freight and then neglecting to provide drivers with the equipment necessary to unload the freight.

The receiver challenged the drivers' claims, contending that the owner-operators had been reimbursed for the cost related to the hiring of the unloading services by either the receiver or the shipper as allowed under the statute. It also asserted that it had eliminated the excess insurance coverage requirements; therefore, the owner-operators' request for injunctive relief on this issue was moot. Finally, it contended that the use of palletized freight was a standard practice in the industry and was not intended to coerce the drivers into hiring unloading services, since the drivers were free to bring their own equipment to unload the pallets. Based on the evidence presented, the court concluded that summary judgment on the claims for declaratory judgment and injunctive relief related to the compensation issue was appropriate because there was insufficient evidence showing that the owner-operators had not been paid. Similarly, the receiver was entitled to judgment on the claim arising from the use of palletized freight because the owner-operators had not presented evidence establishing that any drivers had been forced to hire an unloading service due to the receiver's failure to have provided the necessary unloading equipment. As for the claims related to the insurance issue, the court held that summary judgment was not warranted due to material factual disputes related to the reasonableness of the insurance requirements and their effects on the owner-operators. Furthermore, an injunction might be necessary to ensure that the receiver did not reinstate the insurance requirements, the court concluded. OOIDA v. Supervalu, Inc. (DMinn) Federal Carriers Reporter ¶84,592.

Claims for Goods Damage in Mexico Not Subject to Carmack
A shipper's claim for damages arising from the theft of goods being transported in Mexico was not subject to the Carmack Amendment because the goods had not been transported under “through bills of lading,” a federal district court in Texas ruled. The shipper had hired a freight forwarder to arrange the transportation of goods from Laredo, Texas, to Nuevo Laredo, Mexico. The carriers were to have transported the goods across the border to a Mexican line haul carrier hired by the shipper to transport the goods to their final destination. The goods were stolen when two of the shipments were hi-jacked after the carriers had passed through Mexican customs. The shipper filed suit against the carriers under the Carmack Amendment.

Both the shipper and the carriers filed motions for summary judgment. The carriers argued that the Carmack Amendment was not applicable to losses of cargo occurring in Mexico under a federal statute, which the carriers claimed creates a strict geographical limitation to the jurisdiction of the Secretary of Transportation and negates Carmack's applicability to losses occurring outside the United States. While this interpretation has been adopted by some courts, others have held that the Carmack Amendment covers losses occurring in Mexico or Canada during a through transportation initiated in the United States. In this case, the court concluded that the shipper's losses could be subject to Carmack, but only if the goods had been transported under a through bill of lading.

The court defined a “through bill of lading” as a bill of lading in which a carrier agrees to transport goods from a point of origin to a designated point of destination, even though different carriers may perform portions of the contracted movement. This is determined by looking at the final destination indicated on the document, the conduct of the shipper and the carriers, and whether the connecting carriers were hired and paid by the initial carrier or by separate consideration from the shipper. Here, the evidence submitted by the shipper to establish the existence of through bills of lading were two Spanish-language documents prepared by the freight forwarder. These documents did not fit the definition of a “through bill of lading” because they specifically pertained to transportation entirely within Mexico and did not refer to either the shipper or the carriers. Based on this determination, it was concluded that the goods had not moved under a through bill of lading. Thus, the carriers were not subject to Carmack liability for the losses that occurred in Mexico. Apparel Prod. Servs., Inc. v. Ind. Transp., S.A. de C.V. (SDTex) Federal Carriers Reporter ¶84,593.

Insurer Entitled to Judgment Against Carrier For Lost Goods
A federal district court found a motor carrier liable to an insurance company for damages to a shipment of goods incurred during interstate transportation. The carrier had been hired by a shipper to transport cargo from Minnesota to Ohio. The goods, tendered by the shipper and accepted by the carrier, were damaged when the tractor-trailer carrying them overturned into a ditch. The shipper recovered $31,813.85 from its insurer, which, in turn, had filed suit against the carrier. The carrier did not dispute its liability under Carmack, but challenged the insurer's standing to sue, argued that the breach of contract claim was preempted by Carmack, and opposed the insurer's request for attorneys' fees.

Based on the evidence presented, the court concluded that the insurer had standing to sue as the subrogee of the shipper, despite the carrier's assertion that the bill of lading had transferred title and interest in the cargo to the buyers when the goods were tendered to the carrier for delivery. The court rejected this claim, reasoning that an “unnamed buyer” could not be bound by the terms of a contract it had not accepted or been a party to. As such, since the buyer could not be liable under the bill of lading, it also could not bring a claim for recovery. Here, the shipper was the sole-interest holder, whose rights were subrogated to its insurer. After establishing that the insurer had standing to bring the action, the court addressed the issue of liability, finding that the insurer had established a prima facie case under the Carmack Amendment by showing delivery to the carrier in good condition, arrival at final destination in damaged condition, and the amount of damages. The burden then shifted to the carrier to rebut the insurer's claims. The carrier had been unable to refute the prima facie evidence; therefore, it was found liable for the full actual loss, damage, or injury arising from its failure to have completed the delivery of the goods.

Finally, the carrier successfully challenged the insurer's state law claim for breach of contract and its request for attorneys' fees. Based on the available evidence, the court concluded that both were preempted by the Carmack Amendment. Great W. Cas. Co. v. Flandrich (EDOhio) Federal Carriers Reporter ¶84,594.